Securities Exchange Act of 1934
Release No. 40366 / August 26, 1998
Administrative Proceeding File Number 3-9686
PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDING INSTITUTED AGAINST
DEAN WITTER REYNOLDS INC., HENRY L. AUWINGER, AND DENNIS W. PETERSON
The Securities and Exchange Commission today instituted an
administrative proceeding against Dean Witter Reynolds Inc. and
two of its branch managers, Henry L. Auwinger and Dennis W.
Peterson. The Order alleges that Dean Witter, Auwinger, and
Peterson failed reasonably to supervise Michael J. Oberholzer, a
former broker in Dean Witter's Hayward, California, branch
office. Over a period of more than four years, Oberholzer
defrauded four retired Dean Witter customers and caused investor
losses totaling $320,000 by engaging in a pattern of fraudulent
sales practices that included churning, unauthorized margin
trading, unsuitable trading, and material misrepresentations and
omissions. The Order alleges that Dean Witter, Auwinger, and
Peterson failed to respond adequately to numerous warning signs
about Oberholzer's activities and did not follow Dean Witter's
internal procedures.
The Order alleges that Auwinger, who supervised Oberholzer from
November 1990 until September 1994, ignored warning signs for
several years, including the frequent purchase of risky stocks,
often on margin, in the accounts of elderly customers on fixed
incomes. In addition Auwinger ignored concerns raised about
Oberholzer by the assistant branch manager and operations manager
in the branch. The Order alleges that Peterson, who supervised
Oberholzer from September 1994 through September 1995, also
ignored warning signs. Among other things, Peterson ignored high
margin interest and numerous margin calls in the accounts of
Oberholzer's elderly customers, and he failed to ensure that
Oberholzer followed trading restrictions.
The Order also alleges that Dean Witter's compliance department
failed to respond to many of the same warning signs. The
compliance department knew about the high level of commissions
and margin interest being generated by the aggressive trading in
the accounts of customers with limited financial resources, and
yet failed to escalate its response as the activity continued
year after year. Even though the compliance department had
substantial concerns about Oberholzer's activities when Peterson
became his supervisor, the compliance department did not tell
Peterson about its concerns (although Peterson soon learned about
Oberholzer's active trading).
In addition the Order alleges that Dean Witter's procedures were
not reasonably designed to detect and prevent Oberholzer's
violations because (1) they did not require escalated and timely
responses to recurring problems, and (2) they did not require
that newly assigned branch managers be informed about material
compliance problems relating to the brokers in their new
branches.
Finally, the Order alleges that Dean Witter violated the books
and records provisions of the federal securities laws because
Oberholzer falsified the firm's records.
Auwinger is presently a Dean Witter branch manager in Sacramento,
California, and Peterson supervises the Hayward, California, Dean
Witter branch office. Dean Witter is a brokerage firm and the
wholly-owned subsidiary of Morgan Stanley, Dean Witter & Co. in
New York, New York, and has more than 300 offices located
throughout the United States.
This action against Dean Witter, Auwinger, and Peterson is
brought pursuant to Sections 15(b), 19(h), and 21C of the
Securities Exchange Act of 1934 (the "Exchange Act").
In September 1997, Oberholzer was enjoined from future violations
of Section 17(a) of the Securities Act of 1933 and Section 10(b)
of the Exchange Act and Rule 10b-5 thereunder, and aiding and
abetting violations of Section 17(a) of the Exchange Act and Rule
17a-3 thereunder. Oberholzer was also barred from association
with any regulated entities.
A hearing before an administration law judge will be held to
determine whether the allegations contained in the order are
true, and, if so, to determine what if any sanctions are
appropriate.